Monkey and crayon portfolios performance review.

Monkey and crayon portfolios performance review. Monkey and Crayon stock portfolios five years later. This is an update on the current status of the experiment. In this blog follows a performance review of the two stock portfolios. Both portfolios are being constructed as per the guidelines of the book “Beat the Stock Market Casino” (available on Amazon). The purpose is to show how one can build a retirement stock portfolio perfectly fine by yourself, without much difficulty and hopefully with perfectly acceptable returns. For a quick recap the monkey portfolio picks a different stock randomly with a marker in the quotations page of the newspaper once every six months. The crayon portfolio follows where the monkey portfolio leads in order to keep things comparable. The chosen stocks need to have a US listing in order to be tracked by the portfolio tracking websites. Last but not least the primary listing needs to be in a different currency from the previous two stock picks. That is the experiment in a nutshell. The blog started on the blogger.com website. This is the last update on the experiment on that website. New updates for this project will be released on Rogier’s substack going forward; Substack Home - Rogier’s Substack A full history on this beat the stock market casino project for the monkey and crayon portfolios can also be found on the below company website; Blog | Holland Park Capital London The monkey and crayon portfolios are paper portfolios. Paper portfolios as in not exactly tracked with real money. Holland Park Capital London however believes in putting your money where your mouth is. As such the company is long all the stock holdings in this project.

The number of shares purchased is different though and the time of purchase is not similar either so performance wildly differs. We are about five years in the project by now. What has happened in the meantime? We have had two old American presidents since 2019, a nasty virus escaped from China and central banks have mistakenly believed they could increase the money supply unlimited without unleashing the inflation monster. 1. The first goal of any stock portfolio is to start to make money in absolute return terms. Both the monkey and the crayon portfolio have achieved this so far (ignoring dividends). Why are dividends being ignored in the return evaluation? As per Meb Faber some investor’s like to take their dividends and buy Pina Colada’s on the beach with them. Re-invested dividends can grow to be a huge part of long term stock returns. Since not all investor’s re-invest dividends though excluding dividends will create a more realistic return assumption. 2. The second goal in investing is to increase your purchasing power so one needs to stay ahead of inflation. Inflation measurements vary but the BLS has the following inflation numbers for CPI-U; 1.8% in 2019, 1.2% in 2020, 4.7% in 2021, 8% in 2022 and 4.1% in 2023. So starting with a value of 100 in 2019, in 2024 you would need to have around 126.96 to be able to buy the same amount of hamburgers. So in the last five year fiat money in the US lost about 27% of its purchasing value. 3. The third goal when picking single stocks is for returns not to be too far below the S&P 500 index returns on a time weighted basis. Otherwise it would have been clearly better to just invest in the good old S&P 500 index. So how do the returns of these paper stock portfolios stack up? The return for the Crayon portfolio is as of now 49.3% according to the Sigfig portfolio tracking website.

The return for the Monkey portfolio is now 15.1%.

So both portfolios excluding dividends are making money so the first goal is accomplished. Inflation has proved harder to beat. The Monkey portfolio has not beaten inflation so far. The Crayon has achieved the second goal of beating inflation and increasing the purchasing power. Excluding dividends in the return evaluation is mostly unfair for the Monkey portfolio since the dividends here are higher than in the Crayon portfolio. For 2024 for example the StockRover website expects the Monkey portfolio to receive $ 1668 in dividends compared to only $753 in the Crayon portfolio. Over the last five years the Crayon stock portfolio would likely have received around $ 4800 in dividend income. Including that would push the Crayon return up to about 23% return which is still below the second benchmark of 27% in inflation, but at least not a million miles away anymore. Sometimes the stock market has a couple of bad years and it “owes you” some performance. At other times equities get ahead of themselves and you “have already gotten” some of your future returns. Equities should be an inflation hedge long term and at a minimum stay ahead of inflation. It seems therefore reasonable that the monkey portfolio has been unlucky so far and is “owed” some good future performance. Mean reversion is a powerful force. Ten global holdings so far is also not a diversified portfolio yet. Power laws apply in long-term equity portfolios where one or two holdings can be responsible for the majority of your stock market return. You might find only one such super-stock in a portfolio of 100 or even 200 equity holdings. So as the crayon and monkey portfolio will keep on adding stocks eventually they should each find at least one super-stock. Let’s evaluate returns versus the S&P index now excluding dividends. The easiest way is to check versus an investable option like an S&P 500 index ETF that pays out the collected dividends. The SPDR S&P 500 ETF Trust (SPY) is up about 85.2% over the last five years. So a lump-sum investment in May 2019 in the SPY ETF would have worked out best with hindsight. Holland Park Capital London Ltd has pointed out before what a bloody good and under-loved investment the S&P 500 index can be. Lump-sum investing is more risky though as the investments are not time diversified. Also the monkey and crayon portfolios are more globally diversified than the S&P 500 index. So was all that extra diversification a price worth paying? So far the answer has to be no. Because the monkey and crayon only make an investment every six months the time weighted performance is better than reported returns above. The capital of the crayon and monkey had considerably less time in the market compared to the SPY ETF. Time in the market is crucial for stocks and is more important than timing the market. If we would halve the SPY return to 42.6% it would become a fairer comparison. The crayon portfolio managed to beat that with a 49.3% return. The monkey portfolio underperformed that 42.6% return. So far the monkey has picked more value stocks with higher dividend yields. The monkey portfolio return so far was not worth it with 15.1% return. One of the most boring books I ever read was from the late Daniel Kahneman. The book called “Thinking, Fast and Slow” dives into human overconfidence and mean reversion. Luck plays a much bigger role than we give it credit for in investing. Basically mean reversion should help the monkey portfolio to catch up a little in performance going forward if we had to make a prediction according to the book. By the same logic the portfolio that performed best in the past the crayon portfolio should be predicted to underperform going forward. Time will tell. Let the games begin! To be continued... May the force be with you! Good luck on your investing voyage. Please leave a like and subscribe on my Substack if this blog was of value to you. This blog was written for entertainment and information purposes. The above is not financial advice or investment advice. Investors in stocks can lose money. If in doubt please hire a licensed financial advisor before committing money in the stock market. Do your own research. Holland Park Capital London Ltd is not liable for anything written in this blog.